Sustainable capital supply forecast for 2018

(VEN) - Capital for the economy, both from banks and medium to long-term capital market sources, is forecast to continue growing on a sustainable basis in 2018.

The credit system’s liquidity is forecast to be relatively stable in 2018

According to the National Financial Supervisory Commission (NFSC), capital for the economy in 2018 will increase 19.3 percent over the 2017 level. However, the structure of the capital increase is forecast to shift, with decreasing dependence on credit institutions and increasing inflows from the capital market’s medium and long-term sources. In 2018, capital supply from credit institutions and medium and long-term capital market sources is expected to increase 22.5 and 17.5 percent over 2017, respectively.

The proportion of medium and long-term credit is also likely to decline, while that of short-term credit is expected to soar.

In 2017, credit in industrial, trade and service sectors increased 21.8 percent over 2016, accounting for 78.4 percent of the total, while that in agriculture soared 18.7 percent (representing 8.11 percent of the total), that in real estate and construction businesses augmented 12.2 percent (15.8 percent), and that in consumption grew about 65 percent (18 percent).

Economists have predicted that credit in prioritized areas will continue to grow. Credit for consumption is expected to further grow considerably and become a strategic segment of many banks. The credit system’s liquidity is expected to be relatively stable in 2018. The amount of short-term capital used for medium and long-term loans is expected to decrease, as credit institutions are restructuring their sources towards increasing short-term loans, long-term deposits and issuing bonds and certificates of deposit.

Only minor shifts within 0.2 percentage points are expected in the dong-based deposit and lending interest rates in 2018 compared to 2017. The NFSC predicts slight lending interest rate fluctuations, and increased long-term deposits in some credit institutions to ensure capital for medium to long-term loans, or increased capital to satisfy the Basel II’s capital adequacy ratio (CAR) requirements. However, there are reasons for lowering the dong-based interest rates, including the controlled inflation level of around four percent, low exchange rate pressure, and better resolution of bad debts in accordance with the support mechanism provided in 2017 by National Assembly Resolution 42/2017/QH14. Other indicators of a robust credit market include positive business and liquidity forecasts for the credit system, and changes carried out by weak credit institutions. Since early this year, commercial banks have reduced annual lending interest rates by 0.5 percent to six percent for short-term loans and 7.5 percent for medium to long-term loans in prioritized fields.

In 2018, the securities market, government bonds and foreign direct investment (FDI) and exchange rate policies will provide capital for economic activity. The securities market is expected to further grow, while the government bond market and interest rates are forecast to be stable, and a trade surplus will likely be reached. “The US dollar/Vietnamese dong exchange might be increased 1.5-2 percent, a quite reasonable increase for creating competitive advantages for Vietnam’s exports,” the NFSC said.